1. Trading With Other Nations Standard 3.2.1

2. Bellwork
What is the best trade you ever made. Explain why people trade and what might be the positives/negatives of doing so.

3. Bellwork
What is a skill or ability that you have that is rare or difficult for most other to do? Explain

4. Essential Question:
How does absolute and comparative advantage explain why certain goods or services are produced in a particular nation, region, or locale?

5. Absolute Advantage: the ability of a country to produce a product with fewer resources than another country. A country with an abs. advantage can produce more output per unit than another country.
Specialization: a nation should produce and export a limited assortment of goods for which it is best suited in order to use its resources most efficiently

6. Comparative Advantage: refers to the ability of a person or country to produce a product at a lower opportunity cost than another person or country.

7. Oranges could be grown in Michigan, with the use of greenhouses, BUT
Oranges could be grown in Michigan, with the use of greenhouses, BUT! it would be very costly and wasteful of Michigan's limited resources.
We can then say that Florida has a comparative advantage in oranges, while Michigan has a comparative advantage, because of climate and soil, in the growing of cherries.

8. Comparative and Absolute Advantage Economics in 60 Seconds

9. Notetaker
Write on the following note taker to help you make sense of the fractions involved with analyzing comparative advantage

10. Sample Problem 1 Who has absolute advantage in cars?
Computers
United States 12 4
Japan 10 6
Who has absolute advantage in cars?
United States
Who has absolute advantage in computers?
Japan

11. Sample Problem 2 Who has comparative advantage in computers?
Cars
Computers
United States 12 4
Japan 10 6
Who has comparative advantage in computers?
Japan has comparative advantage in computers because they only have to give up 5/3rds of a car versus the U.S. who has to give up 3 cars to make 1 computer
HINT: always put the item asked about in the denominator
United States’ opportunity cost of computers:
12 3
= = 3 cars
4 1
Japan’s opportunity cost of computers:
10 5
= = 5/3rds of a car
6 3

12. Sample Problem 3 Who has comparative advantage in cars?
Computers
United States 12 4
Japan 10 6
Who has comparative advantage in cars?
United States has the comparative advantage because they only have to give up 1/3rd of a computer versus 3/5ths that Japan has to give up
United States’ opportunity cost of computers:
4 1
= = 1/3rd of a computer
12 3
Japan’s opportunity cost of computers:
6 3
= = 3/5th of a computer
10 5

13. Sample 4 Who has absolute advantage in bananas?
Rice
Fiji 10 5
China 2
Who has absolute advantage in bananas?
Who has absolute advantage in rice?

14. Sample 5 Who has absolute advantage in bananas?
Rice
Fiji 10 5
China 2
Who has absolute advantage in bananas?
Neither-both produce 10 bananas
Who has absolute advantage in rice?
Fiji has absolute advantage

15. Your Turn 1 Who has comparative advantage in bananas? Explain. China
Rice
Fiji 10 5
China 2
Who has comparative advantage in bananas? Explain.
China
China only gives up 1/5 rice whereas Fiji has to give up 1/2 rice
Fiji’s opportunity cost of bananas:
5 1
= = 1/2 rice
10 2
China’s opportunity cost of bananas:
2 1
= = 1/5 rice
10 5

16. Your Turn 2 Who has comparative advantage in rice? Explain. Fiji
Bananas
Rice
Fiji 10 5
China 2
Who has comparative advantage in rice? Explain.
Fiji
Fiji only has to give up 2 bananas whereas China has to give up 5 bananas
Fiji’s opportunity cost of rice:
10 2
= = 2 bananas
5 1
China’s opportunity cost of rice:
10 5
= = 5 bananas
2 1

17. Objectives
Content Objective: I can explain how Absolute and Comparative Advantage are used to decide what to produce
Language Objective: I can read and verbally discuss how Absolute and Comparative Advantage are used to decide what to produce
HW:
Comparative/Absolute Advantage Numbers Assignment
One Page Economics Reading: It’s a Small World…

18. Describe Comparative Advantage Describe Absolute Advantage
Do Now
Describe Comparative Advantage
Describe Absolute Advantage

19. Trade Simulation

20. Mutual Trade Benefits All Parties
Comparative advantage leads to gains from trade, including lower prices, higher quality goods or services, and more choices.
Money from the sale of goods and services traded can be used to purchase goods and services that cannot be produced efficiently.

21. The Final Point
The decision to produce a particular good or service is dependent on the opportunity costs of available resources.

22. Restrictions on World Trade Standard 3.2.2

23. Trade
imports: goods bought from other countries for domestic (home) use
exports: goods sold to other countries

24. Essential Question
Explain the impacts of trade policies on domestic (home) markets and world trade

26. 1. Tariffs Tariff: tax placed on an imported product
Protective Tariff: protects domestic (home) producers used to raise the cost of imported goods
This makes foreign products more expensive

27. More restrictions…
Import Quota: restriction imposed on the number of units of a particular good that can be brought into the country
Embargo: complete restriction on the import or export of a particular good or goods going to or coming from a specific country

29. What are the impacts of these trade policies on domestic markets and world trade?
U.S. tariffs on imported sugar have restricted trade in sugar and increased sugar prices for American consumers while protecting U.S. sugar and corn producers.

30. 2. Monetary Policy
Monetary Policy: refers to a nation’s central bank to control its money supply. They do this through establishing an interest rate
Interest Rate: price the bank chargers a user for a loan
High interest rate = strong dollar
Low interest rate = weak dollar

31. 3. Exchange Rates
Exchange Rate: the price of one nation’s currency compared to another nation’s
Weak dollar makes U.S exports cheaper but imports more expensive
Strong dollar makes imports cheaper but U.S. goods more expensive to export

32. Objective / HW
Content Objective: I can explain the impact of trade policies (monetary policy, exchange rates, interest rates) on domestic markets and world trade
Language Objective: I can verbally discuss and read about the impact of trade policies
HW:
Page One Econ Reading
Exchange Rate Web Activity & Problem Solving

33. Identify and describe the 3 different type of trade barriers
Bellwork
Identify and describe the 3 different type of trade barriers

34. Taxes
Benefits and Consequences
Standard 2.2.3

35. Three Essential Questions About Taxes
What is being taxed?
What is the rate of the tax?
How does it affect taxpayers?

36. WHAT DOES EVERY TAX HAVE?
Tax base: What is being taxed?
Income
Property
Consumption
Tax rate: How is the amount determined?
Flat
Percentage

37. How does the tax rate effect taxpayers?
Proportional
Regressive
Progressive

38. Proportional Taxes
Takes the same percentage or amount from both high and low income tax payers
Examples:
Michigan income tax - all are taxed on their income at the same percentage (4.35%)
Social Security Taxes (up to the limit): Everyone (employer and employee each) pays 6.2% up to $106,800

39. Regressive Taxes
Takes a larger share of income from low income taxpayers than from high income taxpayers
Examples (consumption taxes):
Sales tax- if an individual buys a new appliance and pays $40 in sales tax, this $40 tax affect someone with a lower income more than one with a higher income (6.00%)
Gasoline tax – everyone pays the same percentage but it ends up taking a greater percentage of one’s income from the lower income earners than higher income earners

40. Progressive Taxes
Takes a larger share of the income of high-income taxpayers than of low-income taxpayers.
Higher income levels are taxed at higher rates
Examples:
Federal individual income tax - the higher the income, the higher the tax rate
Brackets include 10% up to $8,375; 15% up to $34,000; 25% up to $82,400; 28% up to $171,850; 33% up to $373,650, 35% beyond $373,650 (single rates)
Corporate income tax rates

41. Effect on $20,000 income Effect on $50,000 income
Type of Tax
Effect on $20,000 income
Effect on $50,000 income
Effect on $100,000 income
Proportional Tax:
4.35% Michigan Income Tax
$ paid in taxes
$2, paid in taxes
$4, paid in taxes
Regressive Tax:
6% Michigan
Sales Tax
You buy new furniture and have to pay $500 in tax. This takes 2.5% of your total income
You buy new furniture and have to pay $500 in tax. This takes 1% of your total income
You buy new furniture and have to pay $500 in tax. This takes 0.5% of your total income
Progressive Tax:
Federal Income Tax
Taxed 15%
$3,000 paid in taxes
Taxed 25%
$12,500 paid in taxes
Taxed 28%
$28,000 paid in taxes

42. Types of Government Taxes
Federal
State
Local
Individual federal income tax
Sales tax
Property tax
FICA (Federal Insurance Corporations Act)
Social Security
Medicare
Individual state income tax
Utility tax (taxes on cable, phone, etc.)
Corporate income tax
State fees
State park fees
School taxes
Estate tax, gift tax
“Sin” taxes
Local sales taxes
Teacher Note: This chart is subject to change as government entities attempt to find ways to raise revenue for them to operate. Previously few municipalities charged a tax, but that is beginning to shift.
Federal Taxes
Individual Income Tax: tax on the income an individual makes from wages and investments.
This is a progressive tax and households pay a % dependent on the tax bracket
FICA (Federal Insurance Corporations Act):a payroll tax taken out one’s paycheck for the Social Security and Medicare systems, which provide an income and medical care to retired and disabled Americans.
Social Security:6% of income up to $98,000
Medicare- 14% for all
Corporate Income Tax: Corporations are taxed off of their profits.
Estate Tax: deals with the transfer of property when a person dies.
Gift Tax: placed on large donations of money- paid by the donor.
State Taxes
Sales Tax– also known as an excise tax. It is a tax that depends on the value of goods/services sold and states have different levels. Therefore this is a regressive tax
Michigan 6%
Individual Income Taxes: tax on the income an individual makes from wages and investments.
This is a proportional tax
“Sin” taxes: tax on activities deemed socially undesirable (cigarettes, alcohol, lottery)
$2.00 on a pack of cigarettes since 2004
Beer= 20 cents/gallon, wine= 51 cents/gallon, liquor= 4%
State fees: Fees charged to individuals for certain activities (hunting and drivers licenses, tuition, hospitals, state park fees)
Local Taxes
Property Tax- assessed each year to indicate home value
It is a proportional tax based on value of home
Also based partly on community vote for mileage (police, education, infrastructure, ect)
Utility Payments- taxes on cable, phone, etc.

43. What does this tell you?
Ask students what they notice about this chart. What information does this chart provide? What does this tell you about the deficit? What does it tell you about individual and corporate income taxes?

44. State Taxes
Explain how the chart shows that the sales and excise tax is regressive?
What questions does this graph raise for you?
Teacher Note: Because this is an average of all states, it makes generalizations. Students would have to look at a particular state to see where it fits in this scheme.

45. Michigan Taxes

46. Local Taxes Property Tax- assessed each year to indicate home value
It is a proportional tax based on value of home
Also based partly on community vote for mileage (police, education, infrastructure, etc.)
Utility Payments

47. Criteria for Evaluating Taxes
Ability to Pay: People should be able to afford to pay the tax.
Equity: A tax should have vertical and horizontal equity.
Vertical - People with different amounts of income should pay different amounts of taxes.
Horizontal – People with the same amount of income should pay the same amount of taxes.
Benefits Received: Those who received more benefits should pay more than those who receive less.
Efficiency: The tax should not inhibit productive activities; nor should it discourage people from working or investing in new capital or businesses. It also should not encourage individuals to be wasteful in buying goods.
Simplicity: The tax should be simple to administer and follow. The rationale for the tax should be generally agreeable and justifiable. Loopholes and exemptions should be minimized.
Criteria: A fair tax should meet at least 3 of the 5 criteria.

48. Objective / HW
HW: Evaluating Taxes Assignment (Comp)

49. Table Partners: Pick the top 5 for where would you want your tax dollars to go. Be prepared to explain your reasoning.
Education
National Parks
Food and Agriculture
Energy and Environment
Science
Transportation
Foreign Aid
Prisons
Food Stamps
Military/ Defense/ Veterans
Social Security
Medicaid/ Medicare

50. Questions Why did you prioritize your top 5 areas over others?
Were there areas you wanted to include but couldn’t?
Have you heard discussion about taxes on the news or at home? What have you heard?

51. We the Economy: Your tax dollars at work
Post Video Q’s
Where does the majority of our tax dollars go?
Were you surprised to learn that 70% of our tax dollars are spent in only 3 areas?
Do you think those are the 3 most important areas?

52. Revenue
Our government uses this revenue $$ to provide us the people with goods and services such as..
1. National Defense, Schools, Libraries, Roads
2. Social Security, Unemployment Benefits, Medicaid, and Medicare

53. Government Programs
Social Security: a federal insurance program that provides benefits to retired people and those who are unemployed or disabled
Medicaid: health care for poor
Medicare: health care retired

54. Focus Question…
What are examples of government tax policies with unintended consequences?

55. Historical Example…
Smoot Haley Tariff of 1930: A law passed by U.S. congress that raised tariff levels to the highest in our history
Increased taxes on imported goods would allow gov. to help bring people out of poverty during Great Depression
Effect: Depression worsened and countries retaliate by taxing our exports
A 1939 cartoon on the effect of the Smoot-Hawley tariff on the world.

56. Modern Day Examples
During the 1980’s, our government imposed an excise tax on the sale of yachts to raise money. The consequence was a significant decline in the purchase of yachts which nearly destroyed the yachts building industry…
Key Point: All actions have consequences, intentional and unintentional…

57. Objective / HW
HW: Netflix Tax Reading / Create Your Own Tax

58. http://www. youtube. com/watch